Take heed, this article is not about the sleeping housing market or jittery stock markets of the world! This is only about your life, your situation, and your future...all of which could be amazing with a few right turns of the key.
First, the News...The Context
You could be in the process of going broke....and no... it's not just that the stock market has been beaten up and that the values of homes have been decimated. You could easily make it through that, if that was all there was. Those two things only hurt.
In this article and in Part Two next week, I'll walk you through how to solve the problem for YOU. I can't fix the world, I can show you how to fix your own situation....
Let's jump right in to the CRACKS in the FOUNDATION POINT #1
The biggest Crack in the Foundation is a simple understanding of what you see in front of you.
Crack in the Foundation #1 - Most people don't quite get what inflation (or deflation) is and how it is soooooo important to everything they think they will have; and then sadly, ultimately discover that they will never end up with an "it" or anything else in their life.
Today, I prefer not to discuss deflation which is pretty complicated. I'll hold that for next week and stick with inflation and YOUR LIFE.
Check this out first, then I'll show you a three-sentence definition of the two kinds of inflation....so you know forever what they are and what they mean to you.
One of the fascinating pieces of replicated research is the revelation that people would prefer to have a 4% raise when there is inflation of 9% vs. a 1% cut in pay when inflation is zero.
Of all of the research I read every week, this sticks out as one of the big symptoms of understanding why people fail and why they have almost no chance to ever escape their current financial situation.
It sounds cooler to tell the wife you got a 4% raise than that you "took a 1% cut in pay."
Ego.
Ego is always bigger than math. Even in hypothetical choice situations. That's scary and that needs to be fixed. Again, we can't fix the world, but you can easily understand that if you were given only the two choices, it's a lot better to lose only 1% (0-1) of your income next year vs. losing 5% (4-9)!
Simple enough?
Let's take a quick 30-second look at some boring old numbers that are part of the reason your friends go broke. They don't understand The Foundation.
Do this: Rearrange the following choices so you know which would best for you and your family if they were your only choices.
This assumes you have a hamster wheel job where you get a "raise" each year, instead of running your own show where you obviously control your own paycheck.
Inflation can mean that there is a rise in the numbers of pieces of paper called money that are then used to chase products and services. Typically, this causes prices of "stuff" to go up (but not always) and prices going up is a kind of inflation, too.
OK, let's check out a few hypothetical one-year scenarios real quick....
A. You get a cut in pay by 1% while inflation is -2%.
B. You get no raise and there is 0% inflation.
C. Inflation is 2% and you get a 1% raise.
D. Inflation is 4.5% and you get a 3% raise.
E. Inflation is 9% and you get a 7% raise.
Let's say in each of these situations, you did the same job, same performance. Everything is equal except what you received as far as a raise (or not), and what the real rate of inflation in your life was for the year.
Which is what you prefer? Where do you feel you got the shaft?
A. You made money! You ended up with more than you had the previous year. Inflation was down. WINNER!
B. No inflation, no increase. You did your job you got paid. Not as good as A, but not terrible.
C. You got slapped in the face. You took a pay cut of 1%
D. You got slapped in the face twice. You took a pay cut of 1.5%
E. You got slapped in the face hard. You took a pay cut of 2%
But, doesn't it feel better...and sound better - to say, "Hey I got a 7% raise..." than it does, "I got a zero percent raise."
The fact is that in all cases except the first, you did not make money. In "A" above, it looks like you took a cut in pay, but you actually made money in real life. Your employer was nice...you worked hard...something good happened.
Simple... right?
Now you know why you seem to be getting a "pay raise" but you really aren't. Simple enough.
Here's the real deal: You will always be given a raise that is about the same as inflation. If you're doing the same job you did last year, it wouldn't make any sense to give you a raise more than inflation.
OK, that's the first Crack in the Foundation that matters a lot to your wallet in the next year: Get ego out of the way of reality.
You probably work and produce the same amount of income for YOU every year. This is the #1 challenge you have.
You really need to be working for 2-3-4 TIMES what you earned last year.
If that goes on for long, you have no idea how difficult life will be in just a few short years.
Let's look at the second and third cracks and solve them.
Turn the page for the next Crack in the Foundation AND find out some important news about your 401K ...
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